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Friday, September 2, 2011

Many Emiratis Have Fallen Into The Trap Of Predatory Lending

Emiratis have been easy targets of irresponsible banks. Burdensome
debt levels mean that the law and lending practices need to change

By Taryam al Subaihi

Throughout
the United Arab Emirates (UAE)'s short history, the banking sector has opened
its doors to Emiratis, welcoming and approving applications for business and
personal loans with their promise of wealth and prosperity.

Regardless
of how absurd the requests, it seemed, the banks would always find a way around
the red tape to approve loans, even for millions of dirhams. And the more money
banks distributed, the higher the targets assigned to banks' lending agents. On
an agent's desk, the green approval stamp never left the pile of Emirati
applications.

"Go
forth and bring in as many Emiratis as possible," the banking kings said,
and so the loan agents went to all four corners of the UAE in search of
trusting, inexperienced nationals who would sign over their lives after a
15-minute sales pitch.

Various
strategies were used to ensure a continuous flow of loan applications. One
example was the system of forced referrals: at the end of the loan application
process, many banks required an Emirati candidate to provide the names of three
other citizens as references to complete the procedure. It was a nationwide
treasure hunt, with Emiratis as the pot of gold at the end of the rainbow for
banks and loan agents.

Young
people were targeted the most, with a specific focus on young college and
university graduates. The perfect catch for a loan agent was a young national
with a clean record, decent first salary and a naivety regarding the world of
finance. Young people were guaranteed loan approval, in less than a week, for
up to 50 times their monthly salaries - providing an excellent commission for
the bank's employees.

And
so began the rise of debt for many Emiratis. Many found themselves owing the
banks millions of dirhams before they reached their late 20s.

This
continued until May 1, when new regulations were implemented by the UAE Central
Bank, capping the amount banks could lend in personal and car loans at 20 times
the borrower's monthly salary, and setting the maximum period of loan repayment
at 48 months. The rules also restrict the service fees lenders can charge for
personal accounts, cheques and debit cards, and do much more.

Here
is an indication of the degree to which this affected the process of lending:
many bank employees were put on high alert in April to relentlessly bring in as
many loan applications as possible before May 1, when the new Central Bank
regulations were implemented.

The
new rules were a breath of fresh air to many Emiratis, who were content that a
system had been put in place that would protect their sons and daughters from
the debt burden they had faced. The new rules should also help to educate young
people on how best to borrow and how to deal with personal finance.

These
new rules indicate, at the very least, that the previous regulations did not
serve Emiratis well. In fact, many people are now in difficult positions when
it comes to paying back the ridiculous debts they have accrued. This has led to
legal action in some cases against Emiratis who were misled in the first place.

Dubai
Police Chief Lt Gen Dahi Khalfan Tamim was right when he called recently for a
change in the penalties for bounced cheques and similar mistakes. At present,
police arrest people who fail to pay their debts or who write bad cheques.
There is no trial in court. No case-resolution system is offered. It is as
simple as the bank providing the cheque, and a nationwide warrant being issued immediately.

People
facing a warrant are barred from travel and from using many government
services. And they face imprisonment until the debt is paid or the case is
dropped by the bank.

As
Lt Gen Tamim suggested, a new system should be considered, in which an
individual could be fined, rather than arrested, for writing a bad cheque. A
failure to abide by the law after three fines could lead to further legal
action. But the police should not be sent out immediately as loan enforcers for
the banking industry. This is not their job and does little for their
reputation, which is otherwise well-respected worldwide.

As
I have mentioned, the Central Bank's previous rules and regulations were not
ideally suited for the UAE. Many people have been misled into a life of
spiralling debt. Although much of this is due to individuals' own misjudgement
of their financial situations, there is also blame deserved for the absolute
freedom that was provided to banks to lure people into outrageous loan schemes.

As
the system has now been adjusted by the Central Bank to allow for more
manageable loan repayments, so should we adjust legal procedures regarding
failed payments by individuals who, simply by following the Central Bank's old
regulations, found themselves facing serious financial problems.

-This commentary was published in The National on 02/09/2011
-Taryam Al Subaihi is a freelance writer from Abu Dhabi who specialises in
corporate communications

About Me

I graduated from the French University in Beirut (St Joseph) specialising in Political and Economic Sciences. I started my working life in 1973 as a reporter and journalist for the pan-Arab magazine “Al-Hawadess” in Lebanon later becoming its Washington, D.C. correspondent. I subsequently moved to London in 1979 joining “Al-Majallah” magazine as its Deputy Managing Editor. In 1984 joined “Assayad” magazine in London initially as its Managing Editor and later as Editor-in-Chief. Following this, in 1990 I joined “Al-Wasat” magazine (part of the Dar-Al-Hayat Group) in London as a Managing Editor. In 2011 I became the Editor-In-Chief of Miraat el-Khaleej (Gulf Mirror). In July 2012 I became the Chairman of The Board of Asswak Al-Arab Publishing Ltd in UK and the Editor In Chief of its first Publication "Asswak Al-Arab" Magazine (Arab Markets Magazine) (www.asswak-alarab.com).

I have already authored five books. The first “The Tears of the Horizon” is a love story. The second “The Winter of Discontent in The Gulf” (1991) focuses on the first Gulf war sparked by Saddam Hussein’s invasion of Kuwait. His third book is entitled “Israeli-Palestinian Conflict: From Balfour Promise to Bush Declaration: The Complications and the Road to a Lasting Peace” (March 2008). The fourth book is titled “How Iran Plans to Fight America and Dominate the Middle East” (October 2008) And the fifth and the most recent is titled "JIHAD'S NEW HEARTLANDS: Why The West Has Failed To Contain Islamic Fundamentalism" (May 2011).

Furthermore, I wrote the memoirs of national security advisor to US President Ronald Reagan, Mr Robert McFarlane, serializing them in “Al-Wasat” magazine over 14 episodes in 1992.

Over the years, I have interviewed and met several world leaders such as American President Bill Clinton, British Prime Minister Margaret Thacher, Late King Hassan II of Morocco, Late King Hussein of Jordan,Tunisian President Zein El-Abedine Bin Ali, Lybian Leader Moammar Al-Quadhafi,President Amine Gemayel of Lebanon,late Lebanese Prime Minister Rafic Hariri, Late Palestinian Chairman Yasser Arafat, Haitian President Jean Claude Duvalier, Late United Arab Emirates President Sheikh Zayed Bin Sultan Al Nahyan,Algerian President Shazli Bin Jdid, Jamaican Prime Minister Edward Siyagha and more...